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What are the different types of mergers?

On Behalf of | May 28, 2024 | Business Law - Mergers

A merger involves the voluntary fusion of two companies to form a new business entity. Business owners with firms roughly equal in size and scale of operations usually agree to merge.

If you are considering this strategy, you will need to identify the type of merger that will address your organization’s needs.

Different types of mergers

A conglomerate merger can be either pure or mixed, and it combines firms operating in unrelated business activities. A pure conglomerate involves two companies with nothing in common. Meanwhile, a mixed merger can help firms looking for product or market extensions.

A horizontal merger combines different organizations offering the same product or service within the same industry. This strategy is common among sectors with fewer companies, where synergies are much greater for merging entities.

On the other hand, a product extension or congeneric merger melds two or more firms operating in the same sector. These firms and their products usually have overlapping factors, such as marketing, technology and production processes. It involves integrating a new product line from one company into an existing product line of another business.

Finally, a market extension merger combines two companies that offer consumers the same products but are associated with different markets. Under the merger, the new entity will have access to a more extensive market and client base.

How a merger can help your business

Understanding your company’s needs is crucial to determine the type of merger appropriate for your firm. With this tactic, you can work towards achieving the following goals:

  • Increase market share
  • Lower operational costs
  • Unite common products
  • Boost profits
  • Expand to new territories

The shares of the new entity are distributed to existing shareholders of the original businesses. This advantage means all firms involved in the merger may benefit from the strategy.